Kansas District Court Dismisses Bank’s Challenge to FDIC Use of ALJs
Recently, the U.S. District Court for the District of Kansas dismissed a Motion for Preliminary Injunction filed by a Kansas Bank requesting relief against the FDIC as they sought to enforce a $20 million civil money penalty against the Bank. The court declined to enjoin the FDIC’s enforcement proceedings for a lack of subject matter jurisdiction, citing the Federal Deposit Insurance Act (FDIA), 12 U.S.C. § 1818(i)(1), which states that “no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under any such section, or to review, modify, suspend, terminate, or set aside any such notice or order.”
The district court case stems from a Notice of Assessment of Civil Money Penalty, in which the FDIC informed the Bank that it had determined the Bank failed to comply with certain anti-money-laundering statutes and regulations. The Bank plans to request a hearing on the Notice, which would occur before an FDIC Administrative Law Judge (ALJ). In support of its request that the Court enjoin the administrative proceeding, the Bank challenged the FDIC’s administrative proceedings as unconstitutional, claiming the FDIC’s use of ALJs violates the Bank’s Seventh Amendment right to a jury trial. Further, the Bank claimed the FDIC’s ALJs “enjoy protection from removal that violate Article II of the United States Constitution.”
On February 24, the FDIC filed a Notice of Change of Position, informing the U.S. District Court for the District of Kansas that “the multiple layers of removal restrictions for administrative law judges in 5 U.S.C. § 7521 do not comport with the separation of powers and Article II and [] the United States will no longer defend them in litigation.” Although this Notice indicated the FDIC no longer intended to contest the Bank’s position regarding ALJs, it nonetheless continued to urge the court to dismiss the Bank’s Motion for Preliminary Injunction.
Even though the FDIC no longer contested the Bank’s position on ALJs, the district court found that it was compelled to dismiss the case for lack of jurisdiction under the FDIA, which only provides a district court with jurisdiction (1) to restrain a temporary order pending the completion of the administrative proceeding; or (2) to enforce an outstanding notice or order. Since neither circumstance applied, the district court found that it lacked jurisdiction. And because the district court’s jurisdiction was explicitly divested by the FDIA, the district court found it could not entertain the Bank’s structural constitutional claims.
